How to Survive Recession
In a recession all small business owners need to be alert, keeping a watchful eye on their enterprise.
So, what should they scrutinize?
What is most significant? What should they strive to achieve?
Is extra ‘sales’ or ‘turnover’ or ‘profit’, one of your answers? You’ve made a mistake! – The most significant is ‘cash’.
It could be silly or unlawful to trade without revenue, but it is impossible to deal in business without cash.
As crisis starts to bite, there will be sufferers; weak or susceptible businesses will go bankrupt.
Amazingly profitable businesses with robust business models will also go bust; despite their sound business, it will be the lack of cash that pushes them over the edge.
So how do you increase your profits during a recession? Most small business owners will say “The best way to increase profits is to sell more, do more marketing, make more sales”… “by reducing prices we can win more business”.
Invariably incorrect. This is the method to turn into a busy fool. Do yourself and your family a huge favour! Relax and use 10 minutes playing with the numbers. (or ask an accountant to do this with you). Look at how much additional revenue is generated by a 5% or a 10% price increase. It may be 30 or 40%. Yes, you might lose some business, but overall it’s likely your revenue will be higher….., your workload will be reduced.
Pay attention to the value you offer to your clients/customers, this can be making things handy for them, providing quality, offering excellent customer service – all these services matter to customers much more than just cost.
So getting back to what matters you need a system to tell you what your position is – to forecast if you are going to run out of it, we are talking of course about the Crosby, Stills and Nash’, the ‘for mash get smash’, the ‘Arthur Ashe’, the ‘bangers and mash’, the ‘jumping Jack Flash’: that’s right – cash.
1. Updated Accounts are required – every week, or at the very least once a month (not once a year) – it is your business. Therefore, it’s your responsibility to identify what you owe, how much you are owed, how much you have got and how much you are going to need.
2. Do a cash-flow forecast – think carefully about how often you need this, every quarter/month/week. Failure to do often enough to keep you in control is inexcusable. Your accountant can help you or you can find a book on Amazon, also find or build a simple excel spreadsheet that you can use to track your cashflow.
3. Be specific about your terms and conditions in your initial agreement and on all invoices.
4. Check new customers for credit worthiness – the internet makes this straight forward – and watch them until they have proved to be reliable.
5. Have a system for invoicing, following-up and collection. Be reasonable but be firm. Talk to anyone who owes you money. Listen. Be clear and be firm. It is your money that they owe you. Here’s a simplified version of the process we have, but you will get what I mean:
Day 1: Provide invoice as soon as work has been completed
Day 7: Ring up the right person to confirm receipt of invoice; confirm that you are expecting the invoice to be paid on the appropriate date.
Day 14: Polite email if no payment received “We are sure that payment is on its way to us but just in case it has been overlooked”
Day 20: Phone call “re outstanding payment”, asking when it was due to be paid
Day 25: Send a letter outlining the communication to date (including their so-called promises to pay) and explain that you can call within 48 hours to find out how the issue will be resolved
Day 27: Phone to confirm payment has/is going to be made and when it can be expected.
Day 30: Send letter including the ‘Statement of Account’ and ‘Terms and Conditions’ they agreed to and saying what you intend to do next.
The ‘what to do next’ bit can be difficult. You should weigh up how much the client is worth for you , and how they may respond. You can say you will refer the issue to a lawyer, and a straightforward lawyer letter shouldn’t cost much. After that it may be time to threaten Court action, or to issue a statutory demand (the form can be found on some websites and costs free). You might come to a decision that the client is valuable to you, and you would choose to give a little longer. Keep in mind though – that is your money!
The whole process educates your customer that you mean business and that you are not the supplier to string along.Often it is the case that if they are allowed to take advantage – they will!
If you are polite and firm, and explain that you are simply following the process they signed up for, then there’s usually no problem.
If it is a problem, think twice if you want trade with an organisation that doesn’t keep its word and tries to keep hold of money that belongs to you!
6. Keep cash on your hand as long as you can. Here is the other side of the coin! You could delay payments owed to your suppliers. Bargain more favorable payment terms & conditions. Understand that not paying suppliers when cash is tight could be a very temporary way out, leading eventually to failure. If something in the business has gone wrong in the beginning eg lack of revenue, there should be information to hand to warn you that.
7. Get yourself a good accountant! Having information to hand on profit and loss, balance sheet and cash flow is something many small business owners ‘get by’ without. Do this at your peril!
Filed under: Business